Under a binding price ceiling, what does the change in producer surplus represent?
A) The gain in surplus for those sellers who are still willing to supply the product at the lower price.
B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.
C) The gain in surplus associated with the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
Question 2
A firm wants to minimize the total cost of producing 100 tons of dynamite. The firm uses two factors of production, chemicals and labor. The combination of chemicals and labor that minimizes production costs will be found where
A) the marginal products of chemicals and labor are equal
B) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the marginal product of chemicals to the marginal product of labor
C) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the price of chemicals to the wage rate
D) the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used
E) none of the above
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